Alex Ovechkin Boosts Bauer Brand in Russian Play - the Globe and Mail 2015-12-16 5:28 PM
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Alex Ovechkin boosts Bauer brand in Russian play - The Globe and Mail 2015-12-16 5:28 PM Alex Ovechkin boosts Bauer brand in Russian play Alexander Ovechkin is a goal-scoring machine, having led the National Hockey League three times in the past six seasons. But the Russian superstar found himself in a slump in 2010— enough of a dry spell, in fact, that he resorted to extreme measures. Frustrated with the CCM sticks he’d been using as part of a multimillion-dollar endorsement deal, Ovechkin began experimenting with other manufacturers. In the high-priced world of sports endorsements, where athlete and brand are contractually wedded, it was as close to infidelity as you can get. To avoid the possibility of legal problems, Ovechkin covered the rival companies’ sticks in black spray paint to obscure their logos. For Ovechkin, it was an act of desperation. For CCM, which is owned by Reebok, a subsidiary of Adidas AG, it was a branding nightmare. But for another company, it was a golden opportunity. And the timing couldn’t have been better. Bauer Performance Sports—CCM’s long-time rival in hockey equipment—was laying the groundwork for a major push into Russia and Eastern Europe. The imminent Sochi Olympics would be the perfect spotlight: Hockey, after all, is a Winter Olympics glamour sport. All Bauer needed was a spokesman for its Russian invasion. Ovechkin, a celebrity in Moscow, would do nicely. When the two sides sat down to discuss an endorsement in the summer of 2011, the talks culminated in a six-year deal for untold millions (Bauer won’t discuss financial terms). Russia beckons because the hockey market in North America is a mature one that is no longer growing like it once did. “They’ve been planning for this for a while now,” says Trevor Johnson, director of equity research at National Bank Financial. “The Olympics are a good platform, so they want to take advantage of that.” And as a public company, Bauer can’t stand still—especially as one whose stock price has more than doubled in the past two years, and is now being watched closely by investors to see if it can maintain that torrid pace. There are mixed signals so far: Revenue rose 7% in fiscal http://www.theglobeandmail.com/report-on-business/rob-magazine/alex…echkin-boosts-bauer-brand-in-russian-play/article15655141/?page=all Page 1 of 7 Alex Ovechkin boosts Bauer brand in Russian play - The Globe and Mail 2015-12-16 5:28 PM 2013, to $400 million. But profit dipped 16%, to $25.3 million, as Bauer spent to acquire smaller equipment makers to bolster its manufacturing operations. That strategy is designed to spur sales at home, while feeding more products into Bauer’s growth markets overseas. “Russia is our single biggest growth market today,” says Bauer CEO Kevin Davis. “It’s the faster adoption of Western brands by the Russian consumer that is driving our expansion there.” But while the Olympics and Ovechkin give Bauer two out of three key ingredients for its Russian invasion, the last piece is the hardest one: logistics and distribution. Beyond the challenges the sheer vastness of the nation presents, just finding retailers that can sell the brand properly is a challenge. Yet the company is pinning big hopes on the strategy working. Bauer isn’t only trying to reinvent the Eastern European hockey market; the company, founded in 1927 by the Bauer family of Kitchener, Ontario, is also in the process of dramatically reinventing itself. ******************************** When Ovechkin came into the NHL nearly a decade ago, Bauer was a much different outfit. The company, which has gone through numerous owners over the years, was bought by Oregon-based Nike in 1995, as the global shoe giant launched a foray into hockey. It was a deal that would stamp Nike’s famous swoosh onto the game, doing for skates what Air Jordan shoes did for basketball. Or so Nike thought. The deal never panned out for Nike, which was often criticized for the sub-par quality and high prices of its gear. As for Bauer, its brand suffered. In 2008, Nike retreated from the business, selling Bauer to private equity firm Kohlberg & Co., and Quebecker-turned- Floridian businessman Graeme Roustan, who pledged to revitalize the brand. The $200- million (U.S.) selling price was barely more than half the $395 million (U.S.) Nike paid for Bauer’s then-parent, Canstar, 13 years earlier. Though Bauer’s headquarters now reside in Exeter, New Hampshire, it has operations in Mississauga, Ontario, and in Saint Jérôme, Quebec, and more than 60% of its shares are held by Canadian investors. http://www.theglobeandmail.com/report-on-business/rob-magazine/alex…echkin-boosts-bauer-brand-in-russian-play/article15655141/?page=all Page 2 of 7 Alex Ovechkin boosts Bauer brand in Russian play - The Globe and Mail 2015-12-16 5:28 PM While Nike’s hockey ambitions took a toll on Bauer, Davis is careful not to disparage the former owners. (He joined the company as chief financial officer in 2004, became chief operating officer in 2006, and was appointed CEO by the new owners in 2008.) He acknowledges hockey wasn’t a priority for a company that dominates the athletic shoe business. “We learned a lot about different ways to do business,” Davis says. “The difference is, of course, we were a very, very small part of Nike. And if you’re at a leadership level there and deciding where to make your investments, you’re going to make it in footwear and apparel—because the growth opportunities are much bigger. We were quite happy to get new owners who had the desire to invest in ice hockey equipment.” Once the deal with Nike had closed, Kohlberg and Roustan set about recapitalizing the business, culminating in a 2011 initial public offering. A private-equity player like Kohlberg won’t be a Bauer owner in the long term. The firm generally has a five-to-seven-year horizon on its investments; Bauer’s IPO was the first step in Kohlberg cashing out. At the start of November, Kohlberg sold another 6.3 million of its Bauer shares for $12.15 each, reducing its stake to about 12%. The firm has done pretty well on its investment so far: The sale price of the shares was more than 60% higher than the IPO price. The Bauer that emerged from the IPO was leaner and more hockey-centric than it had been in a long time. And now that the company was public, it had investors who would be looking for growth. But hockey enrolment numbers in Canada and the U.S. were flatlining, if not falling slightly, as some parents steered their children toward sports that involve fewer injuries and lower costs. So Bauer didn’t stay hockey-centric for long. Almost immediately, it went hunting for acquisitions, racking up a series of deals that pushed the company into new areas, such as lacrosse and baseball. After buying hockey brand Mission-Itech of Kirkland, Quebec, in 2008, Bauer purchased New York-based Maverik Lacrosse in 2010, giving it an entrée to a sport whose equipment has similar designs and technology to hockey. Then in June, 2012, Bauer spent $64 million (U.S.) to buy Cascade Helmets Holdings of Liverpool, New York. A few months later, in October, it acquired Inaria, a sports apparel and uniform manufacturer in Toronto. And in April of this http://www.theglobeandmail.com/report-on-business/rob-magazine/alex…echkin-boosts-bauer-brand-in-russian-play/article15655141/?page=all Page 3 of 7 Alex Ovechkin boosts Bauer brand in Russian play - The Globe and Mail 2015-12-16 5:28 PM year, Bauer paid $4 million for Combat Sports, an Ottawa company that specializes in composite materials for bats, as well as for lacrosse and hockey sticks. The strategy, explains Davis, is to pull other manufacturers into the Bauer fold— manufacturers that can help drive innovations in hockey gear, while Bauer meanwhile also injects new capital into the original businesses so they can grow. Athletes tend to want the same things, regardless of sport, Davis says: light, durable, high-tech gear that makes them better at what they do. “It was a reasonable extension for us to say, can we take what we are really good at in ice hockey and leverage it in other sports.” The Nike days are long gone. “Other than the fact that we still manufacture, sell and design Bauer hockey products, we are a completely unrecognizable business compared to what we were under Nike.” But Bauer’s acquisition binge was to change the nature of the now-public company in another way as well: Bauer is using its balance sheet to buy growth. “When you look at Bauer with their legacy hockey business, because North America is pretty saturated—just not a lot of participation growth—there’s really not a lot of organic growth there,” says National Bank’s Johnson. “Hockey is obviously still the meaningful chunk of their business, so they’ve been kind of forced to acquire just to keep the growth momentum on track.” The problem with that kind of strategy is that it eventually burns itself out: The well of acquisition candidates runs dry, the balance sheet tightens or the company finds itself too levered as a result of deals. Bauer needs market growth as well. ******************************** If you are a young Russian hockey player growing up in a major centre like Moscow or St.